Corporate Finance Literature Review: Capital Structure Analysis

This assignment is a literature review on corporate finance, examining the capital structure of businesses, particularly in developing countries. It analyzes two articles: the first explores the impact of capital structure on debt structure, highlighting that debt usage is more prominent in developing countries, and discusses factors influencing capital structure decisions and their relation to financial success. The second article considers various aspects of a company's capital structure, including the risks associated with increased leverage and the influence of leverage on financial performance, with a focus on G7 countries. The review emphasizes the relationship between debt ratios, leverage, and financial outcomes, concluding that while some modern finance theories are applicable across countries, further research is needed to understand the impact of institutional features on capital structure choices. The bibliography includes several sources that support the research and analysis presented in the literature review.

Running head: CORPORATE FINANCE
Corporate Finance
Name of the Student:
Name of the University:
Author’s Note

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Table of Contents
Literature Review...........................................................................................................2
Article 1......................................................................................................................2
Article 2......................................................................................................................2
Bibliography...................................................................................................................4

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Literature Review
Article 1
The article considers the capital structure of a business and how the same impacts the
capital structure on the overall debt structure of a business. The article shows a lot of data
which is regarding the debt ratios, long term debts which is used in a business. The analysis
of such data presents that debt usage are more prominent in the developing countries in
comparison to developed countries. The data set which is considered by the author shows
listed companies mostly which shows their emphasis on the application of debt capital in the
operations of the business. The article further shows that there are also several factors which
influences the decisions regarding the capital structure and whether the same plays any role in
the overall success of an organization. The article properly takes a sample of some of the
developed and developing countries and on the basis of the same brings out the results. The
ideal case scenario which can be identified from the research paper is that companies which
have a lower debt rate often have high financial performance rates irrespective of what results
are portrayed by debt ratios of different companies. The paper clearly shows that there is a
relation between the debt ratio and other leverage ratios to the financial success which the
company is able to achieve in the operations considering long run.
Article 2
The article considers the different aspects which are related to a capital structure of a
company. The article also collects data from different firms which are operating in major
countries to bring about results for the research. The difference in accounting practices of
different countries acts as a hindrance for measuring the financial performance of different
firms. However, the leverage percentage for the business can be analysed by examining the
liabilities of the business. The research papers shows that as the leverage level of a company

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increases so does the risks which is faced by the business and therefore this can hamper the
performance of the business. The research paper recognises that one of the benefits which is
associated with the increase is leverage is the tax deductions which is available to a business.
The deductions in taxes saves a part of the profits which is generated by a company but the
same is still does not make up for the overall risks which is associated with debts used by a
business. The conclusion of the research paper shows that use of leverages is most common
in G7 countries and the use of the same does have some impact on the operations and
financial success of a business. The use of leverages also brings about certain deal of risks in
the operations which is matter of future research. Therefore, it can be said that the use of
debts have an impact on the financial conditions of the business and thereby affects the
earnings which is made by the business.

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Bibliography
Ahmad, N., Salman, A. and Shamsi, A., 2015. Impact of financial leverage on firms’
profitability: An investigation from cement sector of Pakistan. Research Journal of Finance
and Accounting, 6(7), pp.2222-1697.
Asad, M. and Yousaf, S., 2014. Impact of leverage on dividend payment behavior of
Pakistani Manufacturing Firms. International Journal of Innovation and Applied
Studies, 6(2), p.216.
Kartikasari, D. and Merianti, M., 2016. The effect of leverage and firm size to profitability of
public manufacturing companies in Indonesia. International Journal of Economics and
Financial Issues, 6(2), pp.409-413.
Sen, G. and Ranjan, R., 2018. Rapport between Leverage and Profitability: A Study of TVS
Motor Company. Journal of Finance and Accounting, 6(2), pp.49-55.